Labour plans to force tech giants to compensate online fraud victims

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Labour has drafted plans to make tech companies liable to reimburse victims of online fraud, in a departure from controversial rules that place the burden on banks and have sparked a backlash from the financial sector.

The opposition party, which is on course to win the UK general election on July 4, criticised “big tech companies” who “contribute very little” to tackling online fraud or compensating victims, according to a document seen by the Financial Times.

The paper addressed the issue of authorised push payment (APP) fraud where victims are tricked into sending money to fraudsters from their bank accounts. Britons lost £460mn to APP fraud last year, according to trade body UK Finance, 70 per cent of which involved ordered goods that never materialise.

“Britain’s banks rightly believe it is both unfair and unsustainable that they should be expected to shoulder so much of the burden of trying to tackle APP fraud and reimburse victims, while the big tech companies on whose platforms this fraud takes place, contribute very little to either effort,” the Labour document said.

“It is clear that a new approach is required . . . The big tech companies who provide the platforms on which this fraud takes place must take their proper share of the responsibility for tackling APP fraud and reimbursing victims.”

Asked about the plan, the party said: “Labour is committed to tackling online fraud, working with technology companies to do so. This draft paper is not policy but was produced to help develop options for tackling the issue.”

The document outlined a proposal under which banks would still have to refund fraud victims but could later recoup some money from tech companies. Banks and payment companies would regularly submit evidence to an oversight body, which would determine how much tech companies should contribute.

Other measures in the document included giving statutory footing to the Online Fraud Charter, a 2023 voluntary agreement to prevent fraud signed by major tech groups including Facebook, Amazon, Google and Microsoft.

Although banks are responsible for processing payments, much of purchase fraud comes from false advertisements made on social media platforms including Facebook Marketplace and Instagram, according to Lloyds Banking Group and TSB.

Banks have argued that social media companies should be quicker to detect and take down those fraudulent ads.

Labour is also considering expanding the Economic Crime Act to create the offence of failure by a tech company to prevent fraud on their platform, according to the document.

The plan would mark a shift from the independent Payment System Regulator’s decision to force banks to reimburse fraud victims for claims worth up to £415,000 from October. The PSR’s approach has sparked a backlash from banks and the Conservative government.

Tory City minister Bim Afolami told the FT in May there were “significant problems” with the rules after representatives of the payments industry complained that smaller fintech businesses would not be able to withstand the costly change. The head of the PSR stepped down from the regulator the following week.

Banks have argued that making the tech sector contribute to those costs would give them an incentive to stop fraud from flourishing in the first place. About eight in 10 fraud starts online, according to UK Finance.

Trade body UK Finance has also hit out at the PSR rules, saying they risked emboldening fraudsters to pose as victims to claim compensation money.

The PSR has since appointed David Geale, the FCA’s former director of retail banking, as interim managing director. The regulator has vowed to implement the controversial rules as planned.

Labour said: “We will develop a strategy in government working with all stakeholders to tackle the issue.”

Antony Walker, deputy chief executive of trade body TechUK, which represents companies including Google and Amazon, said: “Tech companies have implemented numerous sophisticated measures to tackle online fraud and are actively delivering on the commitments in the Online Fraud Charter.

“The nature of online fraud is constantly evolving and tech companies remain committed to working with all partners involved in fighting this criminal activity, including the next government.”

Google, Meta, Instagram, Twitter, Amazon, Microsoft and TikTok have also collectively donated $1mn worth of advertising to a national anti-fraud campaign.